Hedge funds exit emerging market assets as real money pours in

Lima

SHORT-TERM investors are escaping emerging markets ahead of a likely US interest rate hike this week amid concern that a strengthening dollar will undermine credit quality in developing nations.

Meanwhile, longer-term investors have increased their exposure, pointing to equity and currency valuations that linger below their five-year averages and arguing that developed nations from the US to France carry greater political risks.

The divergence between the two camps hasn't been this pronounced since October 2015. Over the past four weeks, hedge funds and other leveraged investors posted their biggest emerging market currency outflows since early December, while institutional money managers such as pension funds boosted their inflows to near the h…